Advanced BioEnergy (ABENU) 10-Q 2013 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2012

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number: 000-52421

ADVANCED BIOENERGY, LLC

(Exact name of Registrant as Specified in its Charter)

Delaware	20-2281511
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

8000 Norman Center Drive, Suite 610

Bloomington, Minnesota 55437

(763) 226-2701

(Address, including zip code, and telephone number,

including area code, of Registrant’s Principal Executive Offices)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of February 1, 2013, the number of outstanding units was 25,410,851.

ADVANCED BIOENERGY, LLC

FORM 10-Q

Index

	Page
Part I. Financial Information
Item 1. Financial Statements		3
Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statement of Changes in Members’ Equity		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures About Market Risk		35
Item 4. Controls and Procedures		36
Part II. Other Information
Item 1. Legal Proceedings		37
Item 1A. Risk Factors		37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 3. Defaults Upon Senior Securities		37
Item 4. Mine Safety Disclosure		37
Item 5. Other Information		37
Item 6. Exhibits		37
Signatures		38
Exhibit Index		39

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands)

	December 31, 2012			September 30, 2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	21,756		$	11,210
Accounts receivable:
Trade accounts receivable, net of allowance for doubtful accounts of $10 and $178 at December 31, 2012 and September 30, 2012, respectively		6,888			14,334
Other receivables		1,756			902
Due from broker		—			1,639
Inventories		6,734			21,544
Prepaid expenses		1,080			1,695
Current portion of restricted cash		7,154			5,309
Total current assets		45,368			56,633
Property and equipment, net		66,615			151,654
Other assets:
Restricted cash		8,000			1,146
Notes receivable-related party		—			510
Other assets		1,276			1,694
Total assets	$	121,259		$	211,637
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Accounts payable	$	8,022		$	11,536
Accrued expenses		5,034			6,858
Derivative financial instruments		—			910
Current portion of long-term debt (stated principal amount of $3,317 and $52,731 at December 31, 2012 and September 30, 2012, respectively)		5,597			54,863
Total current liabilities		18,653			74,167
Other liabilities		100			182
Deferred income		—			3,534
Long-term debt (stated principal amount of $70,957 and $71,736 at December 31, 2012 and September 30, 2012, respectively)		76,450			77,871
Total liabilities		95,203			155,754
Members’ equity:
Members’ capital, no par value, 25,410,851 and 24,714,180 units issued and outstanding at December 31 ,2012 and September 30, 2012, respectively		68,792			171,250
Accumulated deficit		(42,736	)		(115,367	)
Total members’ equity		26,056			55,883
Total liabilities and members’ equity	$	121,259		$	211,637

See notes to consolidated financial statements.

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ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Statements of Operations

(Dollars in thousands, except per unit data)

(Unaudited)

	Three months ended
	December 31, 2012			December 31, 2011
Net sales
Ethanol and related products	$	59,491		$	68,188
Other		250			167
Total net sales		59,741			68,355
Cost of goods sold		62,286			63,282
Gross profit (loss)		(2,545	)		5,073
Selling, general and administrative		2,177			1,183
Operating income (loss)		(4,722	)		3,890
Other income		54			25
Interest income		7			8
Interest expense		(1,585	)		(358	)
Income (loss) from continuing operations		(6,246	)		3,565
Income from discontinued operations		78,877			6,527
Net income	$	72,631		$	10,092
Weighed average units outstanding - basic		25,101			24,714
Weighed average units outstanding - diluted		25,101			24,714
Income (loss) from continuing operations per unit - basic and diluted	$	(0.25	)	$	0.14
Income from discontinued operations per unit-basic and diluted		3.14			0.26
Income per unit - basic and diluted	$	2.89		$	0.41

See notes to consolidated financial statements.

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ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Statements of Changes in Members’ Equity

For the Three Months Ended December 31, 2012

(Dollars in thousands)

(Unaudited)

	Member Units		Members’ Capital			Accumulated Deficit			Total
MEMBERS’ EQUITY - September 30, 2012		24,714,180	$	171,250		$	(115,367	)	$	55,883
Unit compensation expense		—		276			—			276
Warrant exercise		532,671		2,290			—			2,290
Exercise of options		164,000		432			—			432
Distribution to members		—		(105,456	)		—			(105,456	)
Net income		—		—			72,631			72,631
MEMBERS’ EQUITY - December 31, 2012		25,410,851	$	68,792		$	(42,736	)	$	26,056

See notes to consolidated financial statements

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ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Three Months Ended
	December 31, 2012				December 31, 2011
Cash flows from operating activities:
Net income	$	72,631			$	10,092
Adjustments to reconcile net income to operating activities cash flows:
Depreciation		2,714				5,767
Amortization of deferred financing costs		44		��		33
Amortization of deferred revenue and rent		(119	)			(176	)
Amortization of additional carrying value of debt		(494	)			(214	)
Unit compensation expense		276				1
Gain on disposal of assets		(76,688	)			(2	)
Loss on warrant derivative liability		1,416				195
Change in risk management activities		—				(231	)
Change in working capital components:
Accounts receivable		8,389				(8,649	)
Inventories		3,947				2,548
Prepaid expenses		475				445
Accounts payable		(3,514	)			3,656
Accrued expenses		(1,909	)			(1,567	)
Net cash provided by operating activities		7,168				11,898
Cash flows from investing activities:
Purchase of property and equipment		(771	)			(1,093	)
Proceeds from sale of assets		155,039				—
Decrease in restricted cash		3,128				984
Net cash provided by (used in) investing activities		157,396				(109	)
Cash flows from financing activities:
Payments on debt		(50,306	)			(11,491	)
Exercise of warrant		799				—
Distribution to members		(104,511	)			—
Net cash used in financing activities		(154,018	)			(11,491	)
Net increase in cash and cash equivalents		10,546				298
Beginning cash and cash equivalents		11,210				18,725
Ending cash and cash equivalents	$	21,756			$	19,023
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,299			$	1,457
Supplemental disclosure of non-cash financing and investing activities:
Exercise of options from distribution proceeds	$	432			$	—
Note receivable settled from distribution proceeds		513				—

See notes to consolidated financial statements.

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ADVANCED BIOENERGY, LLC & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

(Unaudited)

1. Organization and Significant Accounting Policies

The consolidated financial statements include the accounts of Advanced BioEnergy, LLC (“ABE” or the “Company”) and its wholly owned subsidiaries, ABE Fairmont, LLC (“ABE Fairmont”) and ABE South Dakota, LLC (“ABE South Dakota”). All intercompany balances and transactions have been eliminated in consolidation. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2012. The financial information as of December 31, 2012 and the results of operations for the three months ended December 31, 2012 are not necessarily indicative of the results for the fiscal year ending September 30, 2013.

The Company currently operates three ethanol production facilities in the U.S. with a combined production capacity of 85 million gallons per year. The Company acquired existing facilities in Aberdeen, South Dakota (9 million gallons) and Huron, South Dakota (32 million gallons) in November 2006 and began operations at the 44 million gallon Aberdeen expansion facility in January 2008.

On October 15, 2012, the Company and ABE Fairmont signed an agreement to sell the production facility in Fairmont, NE to Flint Hills Resources, LLC. The transaction closed on December 7, 2012. See Note 2 of the financial statements for further description of the transaction.The results of operations for ABE Fairmont are being disclosed as discontinued operations in fiscal 2013 in accordance with the guidance under ASC Topic 205, section 20Discontinued Operations.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash balances are maintained in bank depositories and periodically exceed federally insured limits. The Company has not experienced losses in these accounts. The Company’s restricted cash includes cash held for debt service under the terms of its debt agreements, as well as cash held in an escrow account relating to the sale of the Fairmont facility. The escrow account totals $12.5 million and has scheduled release dates at 9 months and 18 months after the December 7, 2012 sale date.

Fair Value Measurements

In determining fair value of its derivative financial instruments and warrant liabilities, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often uses certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three fair value hierarchy categories.

Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations incorporating certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

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Commodity futures and exchange-traded commodity options contracts are reported at fair value using Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade (“CBOT’) and New York Mercantile Exchange (“NYMEX”) markets.

The following table summarizes financial assets and financial liabilities measured at the approximate fair value used to measure fair value (amounts in thousands):

At September 30, 2012	Total		Level 1		Level 2		Level 3
Liabilities - Derivative Financial Instruments	$	910	$	910	$	—	$	—
Other Liabilities - Warrant Derivative		75		—		—		75

The Company calculated the fair value of the warrants using the Black-Scholes valuation model. During the three months ended December 31, 2012 and 2011, the Company recognized a loss of $1,416,000 and $195,000 respectively, related to the change in the fair value of the warrant derivative liability. On November 1, 2012, the warrant was exercised and the Company issued 532,671 units. There was an increase in the value of the warrant in the first quarter of fiscal 2013 due to the sale of the Fairmont facility and the resulting distribution paid to unit holders.

The following table reflects the activity for the warrant derivative, the only liability measured at fair value using Level 3 inputs; for the three months ended December 31, 2012 and 2011 (amounts in thousands):

	2012			2011
Beginning balance	$	75		$	182
Loss related to the change in fair value		1,416			195
Transfer to equity upon exercise		(1,491	)		—
Ending balance	$	—		$	377

Receivables

Credit sales are made to a few customers with no collateral required. Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual receivables and considering a customer’s financial condition, credit history and current economic conditions. Receivables are written off if deemed uncollectible. Recoveries of receivables previously written off are recorded when received.

Derivative Instruments/Due From Broker

On occasion, the Company has entered into derivative contracts to hedge the Company’s exposure to price risk related to forecasted corn purchases and forecasted ethanol sales. Accounting for derivative contracts requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction.

Although the Company believes its derivative positions are economic hedges, it has not designated any derivative position as a hedge for accounting purposes and it records derivative positions on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings.

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In addition, certain derivative financial instruments that meet the criteria for derivative accounting treatment also qualify for a scope exception to derivative accounting, as they are considered normal purchase and sales. The availability of this exception is based on the assumption that the Company has the ability and it is probable to deliver or take delivery of the underlying item. Derivatives that are considered to be normal purchases and sales are exempt from derivative accounting treatment, and are accounted for under accrual accounting.

Inventories

Corn, chemicals, supplies, work in process, ethanol and distillers grains inventories are stated at the lower of weighted average cost or market.

Property and Equipment

Property and equipment is carried at cost less accumulated depreciation computed using the straight-line method over the estimated useful lives:

Office equipment	3-7 Years
Process equipment	10 Years
Buildings	40 Years

Maintenance and repairs are charged to expense as incurred; major improvements and betterments are capitalized. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount on the asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group. An impairment loss is measured by the amount by which the carrying value of the asset exceeds the estimated fair value on that date.

Revenue Recognition

Ethanol revenue is recognized when product title and all risk of ownership is transferred to the customer as specified in the contractual agreements with the marketers. At all of the Company’s plants, revenue is recognized upon the release of the product for shipment. Revenue from the sale of co-products is recorded when title and all risk of ownership transfer to customers, which generally occurs at the time of shipment. Co-products and related products are generally shipped free on board (“FOB”) shipping point. Interest income is recognized as earned. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, commissions due to the marketers are deducted from the gross sale price at the time of payment.

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Income Per Unit

Basic and diluted income per unit is computed using the weighted-average number of vested units outstanding during the period. Warrants are considered unit equivalents and were not included in the computations of diluted income per unit in the comparative period because their effects were anti-dilutive. Basic earnings and diluted per unit data were computed as follows (in thousands except per unit data):

	Three Months Ended December 31,
	2012			2011
Numerator:
Basic and diluted earnings per unit:
Income (loss) from continuing operations	$	(6,246	)	$	3,565
Discontinued operations		78,877			6,527
Net income for basic and diluted earnings per unit	$	72,631		$	10,092
Denominator:
Basic common units outstanding		25,101			24,714
Diluted common units outstanding		25,101			24,714
Income (loss) from continuing operations per unit - basic and diluted	$	(0.25	)	$	0.14
Income from discontinued operations per unit-basic and diluted		3.14			0.26
Income per unit - basic and diluted	$	2.89		$	0.41

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Discontinued Operations

The Company has classified the results of operations of the Fairmont facility as discontinued operations in the first quarter of fiscal 2013 as a result of the sale of the Fairmont production facility in December 2012, and removed the operating results of Fairmont from continuing operations for all periods presented. The major assets and liabilities relating to the disposal of the operations are disclosed in Note 2. At December 31, 2012, the remaining assets directly related to the sale consist of escrow balances of $12.5 million and $1.1 million of holdbacks related to inventory.

2. Discontinued Operations

On October 15, 2012, ABE Fairmont (“Seller”), the Company, Flint Hills Resources Fairmont, LLC, a Delaware limited liability company (“Flint Hills” or “Buyer”), and Flint Hills Resources, LLC, a Delaware limited liability company (“FHR”), signed an Asset Purchase Agreement under which ABE Fairmont agreed to sell to Buyer, substantially all of the assets of ABE Fairmont, pursuant to the terms and conditions of the Asset Purchase Agreement (the “Asset Sale”). The Asset Sale was completed on December 7, 2012.

Pursuant to the Asset Purchase Agreement, consideration for the Asset Sale consisted of $160.0 million, payable in cash, plus Seller’s inventory value, as calculated in accordance with the Asset Purchase Agreement, for the finished products, raw materials, ingredients and certain other supplies located at Seller’s facility. The

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estimated inventory value at closing was approximately $10.7 million. Under the Asset Purchase Agreement, the Seller paid 90%, or approximately $9.6 million, of the estimated inventory value at closing. Promptly after closing, but no later than 65 days after closing, the final inventory value will be determined by the Seller and Buyer, with a final payment by Buyer or Seller to be made upon determination of that value. Of the total proceeds payable at closing, $12.5 million was placed in escrow to serve as security to satisfy the Seller’s and the Company’s indemnifications obligations to the Buyer, and the Company received approximately $157.2 million.

The Company used these proceeds to repay the outstanding debt principal and interest of $39.8 million as of the closing date and to pay the outstanding transaction costs estimated at $2.2 million. After paying off Seller’s debt and the transaction costs, the Company paid a cash distribution of $105.5 million or $4.15 per unit to its unit holders in December 2012. The Company will have no continuing involvement in the cash flows of the Fairmont facility.

The preliminary major classes of assets and liabilities at September 30, 2012 which were subsequently settled in December 2012 as part of the sale transaction, and the remaining sale-related Fairmont assets are disclosed below (amounts in thousands):

	As of December 31, 2012		As of September 30, 2012
Other receivables	$	1,071	$	—
Inventories		—		14,580
Current portion of restricted cash		4,500		915
Current assets of discontinued operations	$	5,571	$	15,495
Property and equipment, net		—		82,341
Restricted cash		8,000		1,146
Other assets		—		418
Non-current assets of discontinued operations	$	8,000	$	83,905
Accrued expenses	$	—	$	1,670
Current portion of long-term debt		—		49,110
Current liabilities of discontinued operations	$	—	$	50,780
Deferred income		—		3,534
Non-current liabilities of discontinued operations	$	—	$	3,534

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Summarized preliminary revenues and expenses included in discontinued operations in the Statements of Operations for the three months ended December 31, 2012 and 2011 are included in the following table (amounts in thousands):

	Three months ended
	December 31, 2012			December 31, 2011
Net sales
Ethanol and related products	$	74,099		$	96,352
Other		—			—
Total net sales		74,099			96,352
Cost of goods sold		70,583			88,839
Gross profit		3,516			7,513
Selling, general and administrative		1,124			438
Operating loss		2,392			7,075
Other income		206			190
Interest income		6			16
Interest expense		(415	)		(754	)
Income from operations of discontinued components		2,189			6,527
Gain on disposal of discontinued components		76,688			—
Income from discontinued operations	$	78,877		$	6,527

The preliminary gain on disposal of discontinued operations is included in the Income from Discontinued Operations total on the Statement of Operations. The gain on disposal is composed of the following items (in thousands):

Proceeds:
Cash Proceeds	$	157,249
Escrow		12,500
Inventory holdback		1,071
Total Proceeds		170,820
Assets Sold:
Property, plant and equipment		83,097
Inventory		10,864
Restricted cash		673
Deferred income		(3,422	)
Deferred financing costs		396
Prepaid expenses		140
Total Assets Sold		91,748
Transaction costs		2,384
Gain on Disposal of Discontinued Operations	$	76,688

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3. Inventories

A summary of inventories is as follows (in thousands):

	December 31, 2012		September 30, 2012
Corn	$	—	$	4,716
Chemicals		682		919
Work in process		1,532		3,992
Ethanol		2,457		6,574
Distillers grain		500		2,637
Supplies and parts		1,563		2,706
Total	$	6,734	$	21,544

4. Property and Equipment

A summary of property and equipment is as follows (in thousands):

	December 31, 2012			September 30, 2012
Land	$	1,811		$	3,999
Buildings		9,885			21,351
Process equipment		102,984			226,494
Office equipment		1,357			2,155
Construction in process		—			4,542
		116,037			258,541
Accumulated depreciation		(49,422	)		(106,887	)
Property and equipment, net	$	66,615		$	151,654

5. Notes Receivable-Related Party

On June 30, 2011, the Company received a $490,000 promissory note from Ethanol Capital Partners, LP-Series R, Ethanol Capital Partners LP-Series T, Ethanol Capital Partners LP-Series V, Ethanol Investment Partners, LLC and Tennessee Ethanol Partners, LP in connection with payments the Company made in connection with the settlement of arbitration brought by a former officer of the Company against the Company and related litigation brought against a director of the Company. The note was due on July 1, 2016 and accrued interest at the Prime Rate, adjusted annually. The note was secured by a pledge of 4.4 million units of membership in the Company owned by the entities listed above. The note was paid off with the proceeds of the distribution to unit holders in December 2012.

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6. Debt

A summary of debt is as follows (in thousands, except percentages):

	December 31, 2012 Interest Rate			December 31, 2012			September 30, 2012
ABE Fairmont:
Senior credit facility - variable		—		$	—		$	40,740
Seasonal line-variable		—			—			3,000
Subordinate exempt facilities bonds - fixed		—			—			5,370
					—			49,110
ABE South Dakota:
Senior debt principal - variable		3.31	%		71,237			72,342
Restructuring fee		N/A			3,037			3,015
Additional carrying value of restructured debt		N/A			7,773			8,267
					82,047			83,624
Total outstanding					82,047			132,734
Additional carrying value of restructured debt		N/A			(7,773	)		(8,267	)
Stated principal				$	74,274		$	124,467

The estimated maturities of debt at December 31 are as follows (in thousands):

	Stated Principal		Amortization  of Additional Carrying Value of Restructured Debt		Total
2013	$	3,317	$	2,280	$	5,597
2014		2,911		2,508		5,419
2015		3,186		2,408		5,594
2016		64,860		577		65,437
Total debt	$	74,274	$	7,773	$	82,047

Senior Credit Facility for the Fairmont Plant

ABE Fairmont’s outstanding debt under the senior credit facility was paid off on December 7, 2012 from the proceeds of the sale of substantially all the assets of ABE Fairmont.

Fillmore County Subordinate Exempt Facilities Revenue Bonds for the Fairmont plant

ABE Fairmont fully paid off the outstanding balance of the revenue bonds on December 7, 2012 from the proceeds of the sale of substantially all the assets of ABE Fairmont.

Senior Credit Agreement for the South Dakota Plants

ABE South Dakota entered into an Amended and Restated Senior Credit Agreement (the “Senior Credit Agreement”) effective as of June 18, 2010, and further amended on December 9, 2011, which was accounted for under troubled debt restructuring rules. The Senior Credit Agreement was executed among ABE South Dakota, the lenders from time to time party thereto, and Portigon AG, New York Branch, (f/k/a West LB) as

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Administrative Agent and Collateral Agent. The Senior Credit Agreement converted the outstanding principal amount of the loans and certain other amounts under interest rate protection agreements to a senior term loan in an aggregate principal amount equal to $84.3 million. The interest accrued on outstanding term and working capital loans under the existing credit agreement was reduced to zero. ABE South Dakota has agreed to pay a $3.0 million restructuring fee to the lenders due at the earlier of March 31, 2016 or the date on which the loans are repaid in full. ABE South Dakota recorded the restructuring fee as a long-term, non-interest bearing debt on its consolidated balance sheets. ABE South Dakota is also obligated to pay a waiver fee to the senior lenders of $325,000, payable in installments in fiscal 2014 and 2015. The Company has recorded this fee as non-interest bearing debt on its consolidated balance sheet, and is amortizing it against interest expense over the remaining term of the loan.

Since the future maximum undiscounted cash payments on the Senior Credit Agreement (including principal, interest and the restructuring fee) exceed the adjusted carrying value, no gain for the forgiven interest was recorded, the carrying value was not adjusted and the modification of terms will be accounted for on a prospective basis, via a new effective interest calculation, amortized over the life of the note, offsetting interest expense. Based on the treatment of the troubled debt restructuring which will result in the additional carrying value being amortized as a reduction in interest expense over the term of the loan, the Company’s effective interest rate over the term of the restructuring note agreement is approximately 0.33% over the Three-Month LIBOR (0.64% at December 31, 2012).

The principal amount of the term loan facility is payable in one quarterly payments of $1,105,000 on March 31, 2013, and quarterly payments of $750,000 beginning June 30, 2013, with the remaining principal amount fully due and payable on March 31, 2016.

ABE South Dakota has the option to select the interest rate on the senior term loan between base rate and euro-dollar rates for maturities of one to six months. Base rate loans bear interest at the administrative agent’s base rate plus an applicable margin of 2.0%, increasing to 3.0% on June 16, 2013. Euro-dollar loans bear interest at LIBOR plus the applicable margin of 3.0%, and increasing to 4.0% on June 16, 2013. As of December 31, 2012, ABE South Dakota had selected the LIBOR plus 3.0% rate for a period of three months.

ABE South Dakota’s obligations under the Senior Credit Agreement are secured by a first-priority security interest in all of the equity of and assets of ABE South Dakota.

ABE South Dakota is allowed to make equity distributions (other than certain tax distributions) to ABE only upon ABE South Dakota meeting certain financial conditions and if there is no more than $25 million of principal outstanding on the senior term loan. Loans outstanding under the Senior Credit Agreement are subject to mandatory prepayment in certain circumstances, including, but not limited to, mandatory prepayments based upon receipt of certain proceeds of asset sales, casualty proceeds, termination payments, and cash flows.

The Senior Credit Agreement and the related loan documentation include, among other terms and conditions, limitations (subject to specified exclusions) on ABE South Dakota’s ability to make asset dispositions; merge or consolidate with or into another person or entity; create, incur, assume or be liable for indebtedness; create, incur or allow liens on any property or assets; make investments; declare or make specified restricted payments or dividends; enter into new material agreements; modify or terminate material agreements; enter into transactions with affiliates; change its line of business; and establish bank accounts. Substantially all cash of ABE South Dakota is required to be deposited into special, segregated project accounts subject to security interests to secure obligations in connection with the Senior Credit Agreement. The Senior Credit Agreement contains customary events of default and also includes an event of default for defaults on other indebtedness by ABE South Dakota and certain changes of control.

If commodity spreads do not increase from their current levels in the next twelve months, ABE South Dakota may experience challenges in satisfying its debt service obligations. ABE South Dakota is required to

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have at least six months of debt service available in the debt service reserve account at March 31, 2013, which is equal to approximately $3.1 million. As of December 31, 2012, ABE South Dakota had approximately $0.1 million in the debt service reserve account. ABE South Dakota has proactively engaged the senior lenders in discussions about possible remedies to the probable event of default that may occur at March 31, 2013 should ABE South Dakota not be able to generate sufficient cash to pay current debt service requirements and provide for six months of additional debt service in the debt service reserve account prior to March 31, 2013. Potential remedies available are requesting relief from current principal payments, interest payments or both and requesting appropriate waivers to avoid an event of default under its senior secured credit agreement.

7. Major Customers

The two operating subsidiaries of the Company, ABE South Dakota and ABE Fairmont, entered into separate marketing agreements (“Ethanol Marketing Agreements”) with Gavilon, LLC, a commodity marketing firm, and affiliated companies (collectively “Gavilon”), on May 4, 2012 (amended on July 31, 2012). The Ethanol Marketing Agreements required the subsidiaries to sell to Gavilon all of the denatured fuel-grade ethanol produced at the South Dakota and Fairmont plants. The terms of the Ethanol Marketing Agreements began on August 1, 2012, and expire on December 31, 2015. In connection with the closing of the sale of substantially all the assets of ABE Fairmont on December 7, 2012, all obligations of ABE Fairmont under the Ethanol Marketing Agreement with Gavilon were terminated.

ABE Fairmont and ABE South Dakota were parties to separate Ethanol Marketing Agreements with Hawkeye Gold, LLC to sell substantially all of the ethanol produced by the facilities beginning in 2010 through April 30, 2013. Effective July 31, 2012, the Company, its subsidiaries, and Hawkeye Gold mutually agreed to terminate their ethanol marketing relationship for the sale of ethanol from the Company’s ethanol production facilities, in exchange for certain payments based on ethanol gallons sold through April 30, 2013. ABE Fairmont has no further obligations under this agreement after December 7, 2012.

ABE South Dakota is party to a co-product marketing agreement with Dakotaland Feeds, LLC (“Dakotaland Feeds”), whereby Dakotaland Feeds markets the local sale of distillers grains produced at the ABE South Dakota Huron plant to third parties for an agreed upon commission. The Company currently has an agreement with Hawkeye Gold to market the distillers grains produced at the ABE South Dakota Aberdeen plants through July 31, 2013. ABE South Dakota has signed an agreement with Gavilon to market the dried distillers grains from the Aberdeen plant, effective August 1, 2013 until July 31, 2016.

Sales and receivables from ABE South Dakota’s major customers were as follows (in thousands):

	December 31, 2012		December 31, 2011
Gavilon-Ethanol
Three months revenues	$	43,494	$	—
Receivable balance at period end		4,633		—
Hawkeye Gold - Ethanol and Distiller Grains
Three months revenues	$	8,731	$	62,603
Receivable balance at period end		676		3,874
Dakotaland - Distillers Grains
Three months revenues	$	5,605	$	4,200
Receivable balance at period end		1,003		592

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8. Risk Management

The Company is exposed to a variety of market risks, including the effects of changes in commodity prices and interest rates. These financial exposures are monitored and managed by the Company as an integral part of its overall risk management program. The Company’s risk management program seeks to reduce the potentially adverse effects that the volatility of these markets may have on its current and future operating results. To reduce these effects, the Company generally attempts to fix corn purchase prices and related sale prices of ethanol and distillers grains with forward purchase and sales contracts to reduce volatility in future operating margins. In addition to entering into contracts to purchase 0.6 million bushels of corn in which the futures price was not locked, the Company had entered into the following fixed price forward contracts at December 31, 2012 (in thousands):

		Quantity (000s)		Amount		Period Covered
Natural Gas	Purchase Contracts		25 MMBTUs	$	95		Jan 2013
Ethanol	Sale Contracts		226 gallons		462		Jan 2013
Distillers grains	Sale Contracts		12 tons		3,099		Jan 2013
Corn Oil	Sale Contracts		96 pounds		33		Jan 2013

Unrealized gains and losses on forward contracts, in which delivery has not occurred, are deemed “normal purchases and normal sales,” and, therefore are not marked to market in the financial statements.

When forward contracts are not available at competitive rates, the Company may engage in hedging activities using exchange-traded futures contracts, OTC futures options or OTC swap agreements. Changes in market price of ethanol-related hedging activities are reflected in revenues while changes in market price of corn-related items are reflected in cost of goods sold.

9. Members’ Equity

Employment Agreements

In May 2011, the Company granted its Chief Executive Officer an award of unit appreciation rights (“UAR”) with tandem nonqualified unit options. The agreement gave the officer the option to purchase up to 150,000 units in three tranches at prices ranging from $1.50 to $4.50 until May 2021, and under certain circumstances, to exchange the option for a cash payment equal to the appreciation on the value of the units over the exercise price. Each tranche vested at 10,000 units per year if the officer remained employed on May 11 of each year between 2012 and 2016. The units were contingently exercisable only under certain limited circumstances, including a change in control, and therefore the Company did not recognize compensation expense related to the awards until such time that it was probable that these defined circumstances became probable of occurring. In the first quarter of fiscal 2013, the ABE Board provided for the vesting of all units under the UAR agreement in connection with the sale of substantially all the assets of ABE Fairmont. The Company’s Board of Directors also reduced the exercise price of the third tranche to $4.15. The Chief Executive Officer exercised the full award, and the Company issued 150,000 units to the Chief Executive Officer in December 2012 and recorded compensation expense of $212,500.

Change of Control Agreement

On July 31, 2007, the Board granted the Chief Executive Officer the right to receive 14,000 units in connection with a change in control of the Company, subject to the terms and conditions included in his Change in Control Agreement. In December 2012, the Company issued 14,000 units to the Chief Executive Officer under the terms of this agreement as a result of the sale of substantially all Fairmont assets. The Company recorded compensation expense of $60,200 in December 2012, related to this agreement.

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Warrants

In October 2009, the Company issued 532,671 warrants to PJC Capital LLC, to purchase units of the Company. The warrants had an exercise price of $1.50 per unit and expired in October 2014. PJC Capital LLC exercised the warrant on November 2, 2012, and the Company issued 532,671 units to PJC. The Company adjusted the fair value of the warrant derivative prior to exercise and recorded an expense of $1.4 million.

Distribution

On December 14, 2012, as a result of the sale of the Fairmont assets, the Company paid a cash distribution to members of $4.15 per unit for a total of $105.5 million.

10. Parent Financial Statements

The following financial information represents the unconsolidated financial statements of Advanced BioEnergy, LLC (“ABE”) as of December 31, 2012 and September 30, 2012, and the quarters ended December 31, 2012 and 2011. ABE’s ability to receive distributions from its ABE South Dakota subsidiary is based on the terms and conditions in ABE South Dakota’s credit agreement. ABE South Dakota is allowed to make equity distributions (other than certain tax distributions) to ABE only upon ABE South Dakota meeting certain financial conditions and if there is no more than $25 million of principal outstanding on the senior term loan. At December 31, 2012, there was $11.0 million of cash at ABE Fairmont, which has no restrictions on distribution to the parent.

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Advanced BioEnergy, LLC (Unconsolidated)

Balance Sheets

(Unaudited)

	December 31, 2012			September 30, 2012
	(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	7,750		$	5,400
Restricted cash		2,500			2,500
Other receivables		531			530
Prepaid expenses		61			31
Total current assets		10,842			8,461
Property and equipment, net		545			586
Other assets:
Investment in ABE Fairmont		23,683			50,154
Investment in ABE South Dakota		(6,672	)		(3,161	)
Other assets		32			32
Notes receivable-related party		—			510
Total assets	$	28,430		$	56,582
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Accounts payable	$	1,354		$	30
Accrued expenses		920			487
Total current liabilities		2,274			517
Other liabilities		100			182
Total liabilities		2,374			699
Members’ equity:
Members’ capital, no par value, 25,410,851 and 24,714,180 units issued and outstanding at December 31, 2012 and September 30, 2012, respectively		68,792			171,250
Accumulated deficit		(42,736	)		(115,367	)
Total members’ equity		26,056			55,883
Total liabilities and members’ equity	$	28,430		$	56,582

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Advanced BioEnergy, LLC (Unconsolidated)

Statements of Operations

(Unaudited)

	Three months ended
	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Equity in earnings (losses) of consolidated subsidiaries	$	(3,512	)	$	4,123
Management fee income from subsidiaries		391			421
Selling, general and administrative expenses		(1,716	)		(805	)
Operating income (loss)		(4,837	)		3,739
Other income		7			22
Interest expense		(1,416	)		(196	)
Income (loss) from continuing operations		(6,246	)		3,565
Income from discontinued operations		78,877			6,527
Net income	$	72,631		$	10,092

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Advanced BioEnergy, LLC (Unconsolidated)

Statements of Cash Flows

(Unaudited)

	Three months ended
	December  31, 2012			December  31, 2011
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	72,631		$	10,092
Adjustments to reconcile net income to operating activities cash flows:
Depreciation		41			36
Equity in earnings of consolidated subsidiaries		(74,337	)		(9,705	)
Gain on disposal of fixed assets		—			(13	)
Amortization of deferred revenue and rent		(7	)		(7	)
Unit compensation expense		276			—
Loss on warrant derivative liability		1,416			195
Change in working capital components:
Accounts receivable		(4	)		28
Prepaid expenses		(30	)		6
Accounts payable and accrued expenses		1,757			(442	)
Net cash provided by operating activities		1,743			190
Cash flows from investing activities:
Purchase of property and equipment		—			(63	)
Proceeds from disposal of fixed assets		—			22
Distributions from subsidiaries		104,319			—
Net cash provided by (used in) investing activities		104,319			(41	)
Cash flows from financing activities:
Exercise of warrant		799			—
Distribution to members		(104,511	)		—
Net cash used in financing activities		(103,712	)		—
Net increase in cash and cash equivalents		2,350			149
Beginning cash and cash equivalents		5,400			3,457
Ending cash and cash equivalents	$	7,750		$	3,606

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Information Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations, performance and prospects. All statements that are not historical or current facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control, which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Certain of these risks and uncertainties are described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended September 30, 2012 and in this Form 10-Q. These risks and uncertainties include, but are not limited to, the following:

• our operational results are subject to fluctuations in the prices of grain, utilities and ethanol, which are affected by various factors including weather, production levels, supply, demand, changes in technology and government support and regulations;

• margins can be volatile and could become or remain negative, which may affect our ability to meet current obligations and debt service requirements at our ABE South Dakota entity;

• our hedging transactions and mitigation strategies could materially harm our results;

• cash distributions depend upon our future financial and operational performance and will be affected by debt covenants, reserves and operating expenditures;

• current governmental- mandated tariffs, credits and standards may be reduced or eliminated, and legislative acts taken by state governments such as California related to low-carbon fuels that include the effects caused by indirect land use, may have an adverse effect on our business;

• alternative fuel additives may be developed that are superior to or cheaper than ethanol;

• transportation, storage and blending infrastructure may become impaired, preventing ethanol from reaching markets;

• our operating facilities may experience technical difficulties and not produce the gallons of ethanol we expect and insurance proceeds may not be adequate to cover these production disruptions;

• our units are subject to a number of transfer restrictions, no public market exists for our units, and we do not expect a public market to develop;

• $12.5 million of the proceeds from the sale of our Fairmont facility are subject to the terms of an escrow agreement with the buyer;

• the ability of our ABE South Dakota subsidiary to make distributions to ABE in light of restrictions in this subsidiary’s credit facility; and

• the supply of ethanol rail cars in the market is extremely tight, which could affect our ability to obtain new tanker cars or negotiate new leases at a reasonable fee when our current leases expire.

You can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. Readers are urged to carefully review and consider the various

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disclosures made by us in this report and in our other reports filed from time to time with the Securities and Exchange Commission that advise interested parties of the risks and factors that may affect our business.

General

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements included herewith and notes to the consolidated financial statements thereto.

Overview

Advanced BioEnergy, LLC (“Company,” “we,” “our,” “Advanced BioEnergy” or “ABE”) was formed in 2005 as a Delaware limited liability company. Our business consists of producing ethanol and co-products, including wet, modified and dried distillers grains, as well as corn oil. Ethanol is a renewable, environmentally clean fuel source that is produced at numerous facilities in the United States, mostly in the Midwest. In the U.S., ethanol is produced primarily from corn and then blended with unleaded gasoline in varying percentages. Ethanol is most commonly sold as E10. Increasingly, ethanol is also available as E85, which is a higher percentage ethanol blend for use in flexible-fuel vehicles. Ethanol has also recently become available in certain states in limited locations as E15.

In November 2006, we acquired ABE South Dakota, which owned existing ethanol production facilities in Aberdeen and Huron, South Dakota. Construction of our new facility in Aberdeen, South Dakota began in April 2007, and operations commenced in January 2008. Our production operations are carried out primarily through our operating subsidiaries, ABE Fairmont, which owned and operated the Fairmont, Nebraska plant and ABE South Dakota, which owns and operates plants in Aberdeen and Huron, South Dakota.

On October 15, 2012, the Company and its wholly-owned subsidiary ABE Fairmont, LLC (“ABE Fairmont”) entered into an asset purchase agreement under which the Company and ABE Fairmont, LLC agreed to sell substantially all of the assets of ABE Fairmont’s ethanol and related distillers and non-food grade corn oil businesses located in Fairmont, Nebraska (the “Asset Sale”) to Flint Hills Resources, LLC. The Asset Sale was completed on December 7, 2012.

The purchase price for the Asset Sale was $160.0 million, plus the value of ABE Fairmont’s inventory at closing. The estimated inventory closing value was $10.7 million, of which 90% or $9.6 million was paid at closing and the remaining $1.1 million subject to final adjustment, will be paid within 65 days of closing. Of the gross proceeds, $12.5 million was paid into an escrow account to secure the indemnification of the Company and ABE Fairmont, with scheduled release dates on the 9-month and 18-month anniversary of closing.

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources in assessing performance. Based on the related business nature and expected financial results, the Company’s plants are aggregated into one operating segment.

DRY MILL PROCESS

Dry mill ethanol plants produce ethanol by predominantly processing corn. Other possible feeds are grain sorghum, or other cellulosic materials. The corn is received by truck, then weighed and unloaded in a receiving building. It is then conveyed to storage silos. Thereafter, it is transferred to a scalper to remove rocks, cobs, and other debris before it is fed to a hammer mill where it is ground into flour and conveyed into a slurry tank. Water, heat and enzymes are added to the flour in the slurry tank to start the process of converting starch from the corn into sugar. The slurry is pumped to a liquefaction tank where additional enzymes are added. These enzymes continue the starch-to-sugar conversion. The grain slurry is pumped into fermenters, where yeast is added, to

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begin the batch-fermentation process. Fermentation is the process of the yeast converting the sugar into alcohol and carbon dioxide. After the fermentation is complete, a vacuum distillation system removes the alcohol from the grain mash. The 95% (190-proof) alcohol from the distillation process is then transported to a molecular sieve system, where it is dehydrated to 100% alcohol (200 proof). The 200-proof alcohol is then pumped to storage tanks and blended with a denaturant, usually gasoline. The 200-proof alcohol and 2.0-2.5% denaturant constitute denatured fuel ethanol.

Corn mash left over from distillation is pumped into a centrifuge for dewatering. The liquid from the centrifuge, known as thin stillage, is then pumped from the centrifuges to an evaporator, where it is concentrated to a syrup. The solids that exit the centrifuge, known as the wet cake, are conveyed to the dryer system. Syrup is added to the wet cake as it enters the dryer, where moisture is removed. The process produces distillers grains with solubles, which is used as a high-protein/fat animal-feed supplement. Dry-mill ethanol processing creates three forms of distillers grains: wet distillers grains with solubles, known as wet distillers grains; modified wet distillers grains with solubles, known as modified distillers grains; and dry distillers grains with solubles, known as dry distillers grains. Wet and modified distillers grains have been dried to approximately 67% and 50% moisture levels, respectively, and are predominately sold to nearby markets. Dried distillers grains have been dried to 11% moisture, have an almost indefinite shelf life and may be sold and shipped to any market regardless of its proximity to an ethanol plant.

Corn oil is produced by processing evaporated thin stillage through a disk stack style centrifuge. Corn oil has a lower density than water or solids that make up the syrup. The centrifuges separate the relatively light oil from the heavier components of the syrup, eliminating the need for significant retention time. De-oiled syrup is returned to the process for blending into wet, modified, or dry distillers grains. The corn oil is then pumped into storage tanks before being loaded onto trucks for sale.

FACILITIES

The table below provides a summary of our ethanol plants in operation as of December 31, 2012:

Location	Estimated Annual Ethanol Production		Estimated Annual Distillers Grains Production(1)		Estimated Annual Corn Processed		Primary Energy  Source		Builder
	(Million gallons)		(000’s Tons)		(Million bushels)
Aberdeen, SD(2)		9		27		3.2		Natural Gas		Broin
Aberdeen, SD(2)		44		134		15.7		Natural Gas		ICM
Huron, SD		32		97		11.4		Natural Gas		ICM
Consolidated		85		258		30.3

(1) Our plants produce and sell wet, modified and dried distillers grains. The stated quantities are on a fully dried basis operating at full production capacity.

(2) Our plant at Aberdeen consists of two production facilities that operate on a separate basis.

We believe that each of the operating facilities is in adequate condition to meet our current and future production goals. We also believe that these plants are adequately insured for replacement cost plus related disruption expenditures.

We pledged a first-priority security interest in and first lien on substantially all of the assets of the ABE South Dakota plants to the collateral agent for the senior creditor of these plants.

Sales of distillers grains have represented 24.0% and 16.5% of our revenues for the quarters ended December 31, 2012 and 2011, respectively. When the plants are operating at capacity they produce

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approximately 258,000 tons of dried distillers grains equivalents per year, approximately 17 pounds per bushel of corn. Distillers grains are a high-protein, high-energy animal feed supplement primarily marketed to the dairy, beef, poultry and swine markets. Corn oil sales represented approximately 1% of our revenues for the quarter ended December 31, 2012. We currently sell our corn oil primarily to biodiesel manufacturers.

Plan of Operations Through December 31, 2013

Over the next calendar year, we will continue our focus on operational improvements at each of our operating facilities. These operational improvements include exploring methods to improve ethanol yield per bushel and maximizing production output at each of our plants. We will also have a continued emphasis on safety and environmental regulation, reducing our operating costs, and optimizing our margin opportunities through prudent risk-management policies.

Quarter Ended December 31, 2012 Compared to Quarter Ended December 31, 2011

The following table reflects quantities of our products sold at average net prices as well as bushels of corn ground and therms of gas burned at average costs for the three months ended December 31, 2012 and 2011:

	Three Months Ended December 31, 2012				Three Months Ended December 31, 2011
	Sold/Consumed		Average		Sold/Consumed		Average
	(In thousands)		Net Price/Cost		(In thousands)		Net Price/Cost
Ethanol (gallons)		20,183	$	2.21		21,792	$	2.61
Dried distillers grains (tons)		36		240.35		38		186.41
Wet/modified distillers grains (tons)		56		99.26		62		68.70
Corn Oil (pounds)		1,864		0.30		—		—
Corn (bushels)		7,082		7.07		7,673		6.26
Gas (mmbtus)		577		3.98		612		4.25

Net Sales

Net sales for quarter ended December 31, 2012 were $59.7 million compared to $68.4 million for the quarter ended December 31, 2011, a decrease of $8.7 million or 13%. The decrease in revenues was primarily due to a decrease in the average price of ethanol of 15%, as well as a 1.6 million gallon decrease in the volume of gallons. We believe demand in the quarter ended December 31, 2011 increased due to the expiration of the volumetric ethanol excise tax credit (VEETC) blending credit on December 31, 2011, as refiners added to their inventory prior to expiration of the blending credit. The Company experienced declining ethanol margins in calendar 2012 due to an overcapacity in the industry following expiration of the VEETC on December 31, 2011, and an increase in imports from Brazil. The $12.2 million drop in ethanol sales was partially offset by an increase in distillers grains sales of $3.0 million, which was primarily a result of an increase in the average price of approximately 32% in the first fiscal quarter of 2012 compared to 2011. The price of distillers grains generally follows the price of corn, resulting in higher prices in 2012, as well as tighter supplies. During the fiscal quarters ending December 31, 2012 and 2011, 75% and 83%, respectively, of our net sales were derived from the sale of ethanol and our remaining net sales were derived from the sale of distillers grains and corn oil. We began selling corn oil in April 2012, and sold $0.6 million of oil in the first quarter of fiscal 2013.

Cost of Goods Sold

Costs of goods sold for the quarter ending December 31, 2012 were $62.3 million, compared to $63.3 million for the quarter ending December 31, 2011, an increase of $1.0 million or 1.6%. Corn costs represented 80% and 76% of cost of sales for the fiscal quarters ending December 31, 2012 and 2011. Corn costs increased 13% to $7.07 per bushel in the quarter ending December 31, 2012 from $6.26 per bushel for the quarter ending December 31, 2011, primarily due to drought conditions in the Midwestern region of the United States. The Company believes that corn prices will remain high until the next crop year due to tight supplies. Natural gas

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costs represented 4% of cost of sales for the fiscal quarters ending December 31, 2012 and 2011. Our average gas prices decreased slightly to $3.98 per mmbtu in the quarter ending December 31, 2012 from $4.25 per mmbtu in the quarter ending December 31, 2011.

Gross Profit

Our gross loss for the quarter ending December 31, 2012 was $2.6 million, compared to gross profit of $5.1 million for the quarter ending December 31, 2011. The decrease in gross profit was primarily due to a decrease in the crush margin during the first quarter of fiscal 2012 compared to 2011. We define the crush margin as the price of ethanol per gallon less the costs of corn and natural gas on a per gallon basis. Crush margins for the quarter ending December 31, 2012 decreased by 53%, compared to the same period in 2011. Margins in the second fiscal quarter may remain weak due to over-capacity in ethanol production, imports from Brazil, and tight corn supplies, among other factors. Recent indications suggest that plant shutdowns around the country may be easing the ethanol supply imbalances, and could lead to improved ethanol prices should the idled production stay off-line for an extended period.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses are comprised of recurring administrative personnel compensation, legal, technology, consulting, insurance and accounting fees.

For the quarter ending December 31, 2012, selling, general and administrative expenses were $2.2 million compared to $1.2 million for the quarter ending December 31, 2011. As a percentage of sales, selling, general and administrative expenses increased to 3.6% for the quarter ended December 31, 2012, compared to 1.7% for the quarter ended December 31, 2011, primarily as a result of several non-recurring expenses. In the quarter ended December 31, 2012, we incurred charges relating to environmental audits of $0.2 million, severance accruals of $0.4 million relating to reductions in headcount at our corporate headquarters, and unit compensation costs of $0.3 million as a result of unit grants vesting as a result of the sale of our Fairmont facility.

Excluding these non-recurring costs, the administrative costs for the quarter ended December 31, 2012 were $1.3 million, which is consistent with the quarter ended December 31, 2011.

Interest Expense

Interest expense for the quarter ending December 31, 2012 was $1.6 million, compared to $0.4 million for the quarter ended December 31, 2011, an increase of $1.2 million. The increase was due to a mark-to-market loss of $1.4 million on the warrant derivative prior to its exercise in November 2012. Excluding the mark-to-market loss, interest expense was comparable to fiscal 2012. An increase in the margin on the variable rate loans in accordance with the lending documents was offset by an increase in the amortization of the additional carrying value of debt in the first quarter of fiscal 2013.

Income from Discontinued Operations

During the quarter ended December 31, 2012, we recorded a gain on the sale of $76.7 million from the sale of the production assets of our Fairmont subsidiary.

TRENDS AND UNCERTAINTIES AFFECTING THE ETHANOL INDUSTRY AND OUR FUTURE OPERATIONS

Overview

Ethanol is currently blended with gasoline to meet regulatory standards as a clean air additive, an octane enhancer, a fuel extender and a gasoline alternative. According to the Renewable Fuels Association, as of January 2013, the estimated ethanol production capacity in the United States is 14.7 billion gallons per year. The

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demand for ethanol is affected by what is commonly referred to as the “blending wall”, which is a regulatory cap on the amount of ethanol that can be blended into gasoline. The blend wall affects the demand for ethanol, and as industry production capacity reaches the blend wall, the supply of ethanol in the market may surpass the demand. Assuming current gasoline usage in the U.S. at 134 billion gallons per year and a blend rate of 10% ethanol and 90% gasoline, the current blend wall is approximately 13.4 billion gallons of ethanol per year.

Ethanol is most commonly sold as E10, the 10 percent blend of ethanol for use in all American automobiles. Increasingly, ethanol is also available as E85, a higher percentage ethanol blend for use in flexible fuel vehicles. To further drive growth in ethanol usage, Growth Energy, an ethanol industry trade association, requested a waiver from the Environmental Protection Agency (“EPA”) to increase the allowable amount of ethanol blended into gasoline from the current 10% level to a 15% level. On October 13, 2010, EPA granted a first partial waiver for E15 for use in model year 2007 and newer light-duty motor vehicles (i.e., cars, light-duty trucks and medium-duty passenger vehicles). On January 21, 2011, EPA granted the second partial waiver for E15 for use in model year 2001-2006 light-duty motor vehicles. On June 15, 2012, EPA took additional action allowing E15 to be used more broadly in vehicles with model years 2001 and later. Although regulatory issues remain in many states, E15 is now available in limited locations in a number of states.

Our operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains and natural gas. As a result of price volatility for these commodities, our operating results may fluctuate substantially. The price and availability of corn are subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, weather, federal policy and foreign trade. Because the market price of ethanol is not always directly related to corn prices, at times ethanol prices may lag movements in corn prices and compress the overall margin structure at the plants. As a result, operating margins may become negative and we may be forced to shut down the plants.

We focus on locking in margins based on a cash flows model that continually monitors market prices of corn, natural gas and other input costs against prices for ethanol and distillers grains at each of our production facilities. We create offsetting positions by using a combination of derivative instruments, fixed-price purchases and sales, or a combination of strategies in order to manage risk associated with commodity price fluctuations. Our primary focus is not to manage general price movements, for example minimize the cost of corn consumed, but rather to lock in favorable margins whenever possible. In the quarter ended December 31, 2012, the average Chicago Opis Spot Ethanol Assessment was $2.359 per gallon and the average NYMEX RBOB spot gasoline price was $2.735 per gallon, or approximately $0.375 per gallon above ethanol prices.

Federal policy has a significant impact on ethanol market demand. Ethanol blenders previously benefited from incentives that encouraged usage and a tariff on imported ethanol that supported the domestic industry, both of which have now expired. Additionally, the renewable fuels standard (“RFS”) mandates increased level of usage of both corn-based and cellulosic ethanol. Any adverse ruling on, or legislation affecting, RFS mandates in the future could have an adverse impact on short-term ethanol prices and our financial performance in the future.

The ethanol industry and our business depend upon continuation of the federal and state ethanol supports such as the RFS. We believe the ethanol industry expanded due to these federal mandates, policies, and incentives. These government mandates have supported a market for ethanol that might disappear without these programs. Alternatively, the government mandates may be continued at lower levels than those at which they currently exist. In addition, state regulatory activity may also negatively affect the consumption of corn-based ethanol in certain domestic markets such as California, due to low-carbon fuel standards that take into consideration the effects caused by indirect land use.

The Renewable Fuels Standard

The RFS is a national program that imposes minimum requirements with respect to the amount of renewable fuel produced and used. The RFS was revised by the EPA in July 2010 (“RFS2”) and applies to refineries, blenders, distributors and importers. In 2012, the RFS2 requires that refiners and importers blend renewable fuels

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totaling at least 9.23% of total fuel volume, or approximately 15.2 billion gallons, of which 13.2 billion gallons can be derived from corn-based ethanol. The RFS2 requirement will increase incrementally over the next several years to a renewable fuel requirement of 36.0 billion gallons, or approximately 7% of the anticipated gasoline and diesel consumption, by 2022. The following chart illustrates the potential United States ethanol demand based on the schedule of minimum usage established by the program through the year 2022 (in billions of gallons).

Year	Total Renewable Fuel Requirement		Cellulosic Ethanol Minimum Requirement		Biodiesel Minimum Requirement		Advanced Biofuel		RFS Requirement That Can Be Met With Corn-Based Ethanol
2013		16.55		1.00		—		2.75		13.80
2014		18.15		1.75		—		3.75		14.40
2015		20.50		3.00		—		5.50		15.00
2016		22.25		4.25		—		7.25		15.00
2017		24.00		5.50		—		9.00		15.00
2018		26.00		7.00		—		11.00		15.00
2019		28.00		8.50		—		13.00		15.00
2020		30.00		10.50		—		15.00		15.00
2021		33.00		13.50		—		18.00		15.00
2022		36.00		16.00		—		21.00		15.00

The RFS2 went into effect on July 1, 2010 and requires certain gas emission reductions for the entire lifecycle, including production of fuels. The greenhouse gas reduction requirement generally does not apply to facilities that commenced construction prior to December 2007. If this changes and our plants must meet the standard for emissions reduction, it may affect the way we procure feed stock and modify the way we market and transport our products.

Blending Incentives

The Volumetric Ethanol Excise Tax Credit (“VEETC”), often commonly referred to as the “blender’s credit”, was created by the American Jobs Creation Act of 2004. This credit allowed gasoline distributors who blend ethanol with gasoline to receive a federal excise tax credit of $0.45 per gallon of pure ethanol used, or $0.045 per gallon for E10 and $0.3825 per gallon for E85. To ensure the blender’s credit spurred growth in domestic production, federal policy also insulated the domestic ethanol industry from foreign competition by levying a $0.54 per gallon tariff on all imported ethanol. The VEETC and tariff expired on December 31, 2011. The expiration of the tariff appears to have increased imports in the first ten months of calendar 2012 compared to the same period in 2011.

California Low-Carbon Fuel Standard

In April 2009, the California air regulators approved the Low-Carbon Fuel Standard aimed at achieving a 10% reduction in motor vehicle emissions of greenhouse gases by 2020. Other states may adopt similar legislation, which may lead to a national standard. The regulation requires that providers, refiners, importers and blenders ensure that the fuels they provide in the California market meet a declining standard of carbon intensity. This rule calls for a reduction of greenhouse gas emissions associated with the production, transportation and consumption of a fuel. The emissions score also includes indirect land-use change pollution created from converting a forest to cultivated land for corn feedstock. The final regulation contains a provision to review the measurement of the indirect land-use effects and further analysis of the land-use values and modeling inputs.

In December 2011, the United States District Court for the Eastern District of California ruled that the low-carbon fuel standard violated the commerce clause on the grounds that it discriminates against out-of-state ethanol producers and out-of-state and foreign crude oil transporters in favor of in-state competitors, and issued

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an injunction. In April 2012, the Ninth Circuit Court of Appeals stayed the injunction, and expedited briefing of the appeal. In October 2012, the United States Court of Appeals for the Ninth Circuit heard oral arguments on the case.

This standard and other similar standards by other states may impact the way ethanol producers procure feed stocks, produce dry distillers grains and market and transport ethanol and distillers grains. Ethanol produced through low-carbon methods, including imported ethanol made from sugarcane, may be redirected to certain markets and U.S. producers may be required to market their ethanol in other regions with possible material adverse effects on our profitability.

Imported Ethanol Tariffs

There was a $0.54 per gallon tariff on imported ethanol, which expired on December 31, 2011. Ethanol imports from 24 countries in Central America and the Caribbean region were exempted from the tariff under the Caribbean Basin Initiative or CBI, which provides that specified nations may export an aggregate of 7% of U.S. ethanol production per year into the U.S., with additional exemptions from ethanol produced from feedstock in the Caribbean region over the 7% limit. Ethanol imported from Caribbean basin countries may be a less expensive alternative to domestically produced ethanol. Expiration of this tariff could lead to the importation of ethanol from other countries, which may be a less expensive alternative to ethanol produced domestically. Imports in the first ten months of calendar 2012 have increased by 260 million gallons compared to the same period in 2011. Continued imports will most likely result in lower ethanol prices in the domestic market, and could have an unfavorable effect on our operating margins.

European Union Anti-Dumping Investigation

On November 24, 2011, the European Union (EU) initiated anti-dumping and countervailing duty investigations regarding U.S. exports of ethanol to Europe and current U.S. policies surrounding ethanol production and use. Specifically at issue is federal and state incentives to producers or blenders of ethanol, which the EU alleges are allowing U.S. exports to be sold below fair market value in the EU. The EU could potentially impose anti-dumping tariffs for periods of six months to five years, should it find evidence of dumping. In August 2012, the EU began requiring registration of U.S. ethanol imports. The Company does not export any ethanol to Europe at this time. Any imposition of tariffs could reduce U.S. exports to Europe, and possibly other export markets. A reduction of exports to Europe could have an adverse effect on domestic ethanol prices, as the available supply of ethanol for the domestic market would increase. The anti-subsidy investigation was terminated in December 2012 and no countervailing duties will be imposed on U.S. ethanol imports to the EU. On December 19, 2012, the Antidumping Advisory Committee of the EU endorsed a 9.6 percent penalty on U.S. ethanol imports to Europe, which was approved by a majority of EU states on December 20, 2012. The penalty must still be approved by the European Council before it is implemented.

COMPETITION

Ethanol

The ethanol we produce is similar to ethanol produced by other plants. The RFA reports that as of January 2013, current U.S. ethanol production capacity is approximately 14.7 billion gallons per year, with approximately 1.6 billion gallons idle at the current time. On a national level there are numerous other production facilities with which we are in direct competition, many of whom have greater resources than we do. As of January 2013, South Dakota had 15 ethanol plants producing an aggregate of 1.0 billion gallons of ethanol per year, in each case including our plants.

The largest ethanol producers include: Abengoa Bioenergy Corp., Archer Daniels Midland Company, Cargill, Inc., Green Plains Renewable Energy, Inc., POET, LLC and Valero Renewable Fuels. Producers of this size may have an advantage over us from economies of scale and stronger negotiating positions with purchasers.

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We market our ethanol on a regional and national basis. We believe that we are able to reach the best available markets through the use of experienced ethanol marketers and by the rail delivery methods we use. Our plants compete with other ethanol producers on the basis of price, and, to a lesser extent, delivery service. We believe that we can compete favorably with other ethanol producers due to our proximity to ample grain, natural gas, electricity and water supplies at favorable prices.

Distillers Grains

In the sales of our distillers grains, we compete with other ethanol producers, as well as a number of large and smaller suppliers of competing animal feed. We believe the principal competitive factors are price, proximity to purchasers and product quality. Currently 61% of our distillers grain revenues are derived from the sale of dried distillers grains, which have an indefinite shelf life and can be transported by truck or rail, and 39% as modified and wet distillers grains, which have a shorter shelf life and are typically sold in local markets.

In the sales of corn oil, we compete with other ethanol producers. Many producers are adding corn oil technology to their plants.

LIQUIDITY AND CAPITAL RESOURCES

Financing and Existing Debt Obligations

We conduct our business activities and plant operations through Advanced BioEnergy and ABE South Dakota. The liquidity and capital resources are based on the entity’s existing financing arrangements and capital structure. In June 2010, ABE South Dakota entered into the Senior Credit Agreement (as defined below), which eliminated its subordinated debt. There are provisions contained in the financing agreements at ABE South Dakota preventing cross-default or collateralization between operating entities. Advanced BioEnergy is highly restricted in its ability to use the cash and other financial resources of ABE South Dakota for the benefit of Advanced BioEnergy, with the exception of allowable distributions as defined in the separate financing agreements.

Advanced BioEnergy, LLC

ABE had cash and cash equivalents of $7.7 million on hand at December 31, 2012. ABE does not have any debt outstanding as of December 31, 2012. ABE’s primary source of operating cash comes from charging a monthly management fee to ABE South Dakota for services provided in connection with operating the ethanol plants. The primary management services provided include risk management, accounting and finance, human resources and other general management-related responsibilities. From time to time ABE may also receive certain allowable distributions from ABE South Dakota based on the terms and conditions in its senior credit agreement.

In December 2012, ABE Fairmont paid down its third party debt from the proceeds of the sale of its Fairmont production facility on December 7, 2012, and distributed $104.3 million of the remaining proceeds to ABE on December 14, 2012. ABE subsequently paid a distribution to its unit holders of $105.5 million or $4.15 per unit on December 14, 2012 as a result of the asset sale. ABE will not receive any distribution from ABE South Dakota for its fiscal 2012 financial results.

In connection with the execution of a rail car sublease, the Company, as parent of ABE South Dakota agreed to post an irrevocable and non-transferable standby letter of credit on May 4, 2012 for the benefit of Gavilon in the amount of $2,500,000 as security for the payment obligations of ABE South Dakota under certain agreements with Gavilon. The Company has deposited $2,500,000 in a restricted account as collateral for this letter of credit and has classified it as restricted cash.

We believe ABE has sufficient financial resources available to fund current operations and capital expenditure requirements for at least the next 12 months.

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ABE Fairmont

ABE Fairmont sold its production facility in December 7, 2012 and paid down all outstanding debt from the proceeds from the sale of assets. ABE Fairmont has cash on hand of $11.0 million at December 31, 2012, which is not restricted in its use. ABE Fairmont also has short and long term escrow balances of $4.5 million and $8.0 million, respectively, to secure the indemnification obligations of the Company and ABE Fairmont, with scheduled escrow release dates on the 9-month and 18-month anniversary of closing.

ABE South Dakota

ABE South Dakota had cash and cash equivalents of $3.0 million and $0.2 million of restricted cash on hand at December 31, 2012. The restricted cash consists of $0.1 million for a debt service payment reserve, and $0.1 million in an account for maintenance capital expenditures. As of December 31, 2012, ABE South Dakota had interest-bearing term debt outstanding of $71.2 million. In December 2012, $1.7 million was drawn from the debt service reserve account to pay required debt service reserve obligations.

ABE South Dakota entered into an Amended and Restated Senior Credit Agreement dated as of June 16, 2010 and amended on December 9, 2011 (the “Senior Credit Agreement”) among ABE South Dakota, the lenders from time to time party thereto, and Portigon AG, New York Branch (f/k/a West LB), as administrative agent and collateral agent. The principal amount of the term loan facility is payable with a quarterly payment of $1,105,000 on March 31, 2013, followed by quarterly payments of $750,000 starting June 30, 2013, with the remaining principal amount fully due and payable on March 31, 2016.

ABE South Dakota has agreed to pay a $3.0 million restructuring fee to the lender due at the earlier of March 31, 2016 and the date on which the loans are repaid in full. ABE South Dakota recorded the restructuring fee as long-term, non-interest bearing debt. ABE South Dakota is also obligated to pay a waiver fee to the senior lenders of $325,000, payable in installments in fiscal 2014 and 2015. The Company has recorded this fee as non-interest bearing debt on its consolidated balance sheet, and is amortizing the fee to interest expense over the remaining life of the loan.

ABE South Dakota’s obligations under the Senior Credit Agreement are secured by a first-priority security interest in all of the equity in and assets of ABE South Dakota.

ABE South Dakota is allowed to make equity distributions (other than certain tax distributions) to ABE only if (i) ABE South Dakota meets certain financial conditions and, (ii) there is no more than $25 million of principal outstanding on the senior term loan.

The Senior Credit Agreement and the related loan documentation include, among other terms and conditions, limitations (subject to specified exclusions) on ABE South Dakota’s ability to make asset dispositions; merge or consolidate with or into another person or entity; create, incur, assume or be liable for indebtedness; create, incur or allow liens on any property or assets; make investments; declare or make specified restricted payments or dividends; enter into new material agreements; modify or terminate material agreements; enter into transactions with affiliates; change its line of business; and establish bank accounts. Substantially all cash of ABE South Dakota is required to be deposited into special, segregated project accounts subject to security interests to secure obligations in connection with the Senior Credit Agreement. The Senior Credit Agreement contains customary events of default and also includes an event of default for defaults on other indebtedness by ABE South Dakota and certain changes of control. ABE South Dakota was in compliance with all covenants at December 31, 2012.

If commodity spreads do not increase from their current levels in the next twelve months, ABE South Dakota may experience challenges in satisfying its debt service obligations. ABE South Dakota is required to have at least six months of debt service available in the debt service reserve account at March 31, 2013, which is equal to approximately $3.1 million. As of December 31, 2012, ABE South Dakota had approximately $0.1

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million in the debt service reserve account. ABE South Dakota has proactively engaged the senior lenders in discussions about possible remedies to the probable event of default that may occur at March 31, 2013 should ABE South Dakota not be able to generate sufficient cash to pay current debt service requirements and provide for six months of additional debt service in the debt service reserve account prior to March 31, 2013. Potential remedies available are requesting relief from current principal payments, interest payments or both and requesting appropriate waivers to avoid an event of default under its senior secured credit agreement.

CASH FLOWS

The following table shows our cash flows for the three months ended December 31, 2012 and 2011:

	Three Months Ended December 31
	2012			2011
	(In thousands)			(In thousands)
Net cash provided by operating activities	$	7,168		$	11,898
Net cash provided by (used in) investing activities		157,396			(109	)
Net cash used in financing activities		(154,018	)		(11,491	)

Cash Flow from Operations

Our cash flows from operations for the three months ended December 31, 2012 were lower compared to the same period in 2011, primarily due to decreased margins during fiscal 2012.

Cash Flow from Investing Activities

We received more cash from investing activities in the three months ended December 31, 2012, compared to the same period in 2011 primarily due to the sale of our Fairmont facility. We received net proceeds of $155 million from the sale of our Fairmont assets. Our restricted cash balances also decreased due to the pay down of debt from the debt service reserves in the first quarter of fiscal 2013 at Fairmont and South Dakota.

Cash Flow from Financing Activities

We used more cash for financing activities in the first three months of fiscal 2012 due to the pay down of all outstanding debt at ABE Fairmont after the sale of the facility as well as a normal principal payment of $1.1 million at South Dakota.

CREDIT ARRANGEMENTS

Long-term debt consists of the following (in thousands, except percentages):

	December 31, 2012 Interest Rate		December 31, 2012		September 30, 2012
ABE Fairmont:
Senior credit facility - variable		—	$	—	$	40,740
Seasonal line-variable		—		—		3,000
Subordinate exempt facilities bonds - fixed		—		—		5,370
				—		49,110

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	December 31, 2012 Interest Rate			December 31, 2012			September 30, 2012
ABE South Dakota:
Senior debt principal - variable		3.31	%		71,237			72,342
Restructuring fee		N/A			3,037			3,015
Additional carrying value of restructured debt		N/A			7,773			8,267
					82,047			83,624
Total outstanding					82,047			132,734
Additional carrying value of restructured debt		N/A			(7,773	)		(8,267	)
Stated principal					74,274			124,467

The estimated maturities of debt at December 31, 2012 are as follows (in thousands):

	Stated Principal		Amortization of Additional  Carrying Value of Restructured Debt		Total
2013	$	3,317	$	2,280	$	5,597
2014		2,911		2,508		5,419
2015		3,186		2,408		5,594
2016		64,860		577		65,437
Total debt	$	74,274	$	7,773	$	82,047

SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Note 1 to our consolidated financial statements contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions. Accounting estimates are an integral part of the preparation of financial statements and are based upon management’s current judgment. We used our knowledge and experience about past events and certain future assumptions to make estimates and judgments involving matters that are inherently uncertain and that affect the carrying value of our assets and liabilities. We believe that of our significant accounting policies, the following are noteworthy because changes in these estimates or assumptions could materially affect our financial position and results of operations:

Revenue Recognition

Ethanol revenue is recognized when product title and all risk of ownership is transferred to the customer as specified in the contractual agreements with the marketers. At all our plants, revenue is recognized upon the release of the product for shipment. Revenue from the sale of co-products is recorded when title and all risk of ownership transfers to customers, which generally occurs at the time of shipment. Co-products and related products are generally shipped free on board (FOB) shipping point. Interest income is recognized as earned. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, commissions due to the marketers are deducted from the gross sale price at the time of payment.

Fair Value Measurements

In determining fair value of its derivative financial instruments and warrant liabilities, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including

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assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three fair-value hierarchy categories:

Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less-active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

Commodity futures and exchange-traded commodity options contracts are reported at fair value using Level 1 inputs. For these contracts, the Company obtains fair-value measurements from an independent pricing service. The fair-value measurements consider observable data that may include dealer quotes and live-trading levels from the Chicago Board of Trade (“CBOT”) and New York Mercantile Exchange (“NYMEX”) markets.

Derivative Instruments/Due From Broker

On occasion, the Company has entered into derivative contracts to hedge the Company’s exposure to price risk related to forecasted corn purchases and forecasted ethanol sales. Accounting for derivative contracts requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction.

Although the Company believes its derivative positions are economic hedges, none have been designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings.

In addition, certain derivative financial instruments that meet the criteria for derivative accounting treatment also qualify for a scope exception to derivative accounting, as they are considered normal purchases and sales. The availability of this exception is based on the assumption that the Company has the ability and it is probable to deliver or take delivery of the underlying item. Derivatives that are considered to be normal purchases and sales are exempt from derivative accounting treatment, and are accounted for under accrual accounting.

Inventories

Corn, chemicals, supplies, work in process, ethanol and distillers grains inventories are stated at the lower of weighted average cost or market.

Property and Equipment

Property and equipment is carried at cost less accumulated depreciation computed using the straight-line method over the estimated useful lives:

Office equipment	3-7 Years
Process equipment	10 Years
Buildings	40 Years

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Maintenance and repairs are charged to expense as incurred; major improvements and betterments are capitalized. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount on the asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group. An impairment loss is measured by the amount by which the carrying value of the asset exceeds the estimated fair value on that date.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements.

GOVERNMENT PROGRAMS AND TAX CREDITS

We have applied for income and sales tax incentives available under a Nebraska Advantage Act Project Agreement. As of December 31, 2012, we have received approximately $4.9 million in refunds under the Nebraska Advantage Act. Our ability to earn future benefits for operations subsequent to December 7, 2012 under this program ceased upon sale of the Fairmont facility in December 2012.

The State of South Dakota pays an incentive to operators of ethanol plants to encourage the growth of the ethanol industry. The Huron plant is eligible to receive an aggregate of $9.7 million, payable up to $1 million per year. The amounts are dependent on annual allocations by the State of South Dakota and the number of eligible plants. ABE South Dakota has received $0.25 million in fiscal 2013.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

COMMODITY PRICE RISK

We consider our principal market risk to be the potential changes in commodity prices and their effect on our results of operations. We are subject to significant market risk with respect to the price of ethanol and corn. For the quarter ended December 31, 2012, sales of ethanol represented 75% of our total revenues and corn costs represented 80% of total cost of goods sold. In general, ethanol prices are affected by the supply and demand for ethanol, the cost of ethanol production, the availability of other fuel oxygenates, the regulatory climate and the cost of alternative fuels such as gasoline. The price of corn is affected by weather conditions and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors. At December 31, 2012, the price per gallon of ethanol and the cost per bushel of corn on the Chicago Board of Trade, or CBOT, were $2.19 and $6.98, respectively.

We are also subject to market risk on the selling prices of our distillers grains, which represent 24% of our total revenues. These prices fluctuate seasonally when the price of corn or other cattle feed alternatives fluctuate in price. The dried distiller grains spot price for South Dakota local customers was $245 per ton at December 31, 2012.

We are also subject to market risk with respect to our supply of natural gas that is consumed in the ethanol production process. Natural gas costs represented 3.7% of total cost of goods sold for the quarter ended December 31, 2012. The price of natural gas is affected by weather conditions and general economic, market and regulatory factors. At December 31, 2012, the price of natural gas on the NYMEX was $3.351 per mmbtu.

To reduce price risk caused by market fluctuations in the cost and selling prices of related commodities, we have entered into forward purchase/sale contracts and derivative transactions. At December 31, 2012 we guaranteed prices representing 1.6% of our estimated ethanol production through March 2013 by entering into flat-priced contracts. At December 31, 2012 we had entered into forward sale contracts representing 27.8% of our expected distillers grains production requirements through March 2013. At December 31, 2012, prices of 4.6% of our expected gas usage through March 2013 were fixed with our natural gas providers.

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The following represents a sensitivity analysis that estimates our annual exposure to market risk with respect to our current corn and natural gas requirements and ethanol sales. Market risk is estimated as the potential impact on operating income resulting from a hypothetical 10% change in the current ethanol, distiller grains, corn, and natural gas prices. The results of this analysis, which may differ from actual results, are as follows:

	Estimated at Risk Volume (1)		Units		Hypothetical Change in Price			Spot Price(2)		Change in Annual Operating Income
	(In millions)									(In millions)
Ethanol		82.3		gallons		10.0	%	$	2.19	$	18.0
Distillers grains		0.10		tons		10.0	%		245.50		2.5
Corn		30.3		bushels		10.0	%		6.78		20.5
Natural gas		2.1		btus		10.0	%		3.35		0.7

(1) The volume of ethanol at risk is based on the assumption that we will enter into contracts for 3.2% of our expected annual gallons capacity of 85 million gallons. The volume of distillers grains at risk is based on the assumption that we will enter into contracts for 55.9% of our expected annual distillers grains production of 285,000 tons. The volume of corn is based on the assumption that we will enter into forward contracts for none of our estimated current 30.3 million bushel annual requirement. The volume of natural gas at risk is based on the assumption that we will continue to lock in 12.4% of our gas usage.

(2) Current spot prices include the CBOT price per gallon of ethanol and the price per bushel of corn, the NYMEX price per mmbtu of natural gas and our listed local advertised dried distillers grains price per ton as of December 31, 2012.

INTEREST RATE/FOREIGN EXCHANGE RISK

Our future earnings may be affected by changes in interest rates due to the impact those changes have on our interest expense on borrowings under our credit facilities. As of December 31, 2012, we had $71.2 million of outstanding borrowings with variable interest rates. With each 1% change in interest rates our annual interest would change by $0.7 million.

We have no direct international sales. Historically all of our purchases have been denominated in U.S. dollars. Therefore we do not consider future earnings subject to foreign exchange risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer, who is also our chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our chief executive officer, who is also our chief financial officer, concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officer, to allow timely decisions regarding required disclosures.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments in any pending material legal proceedings.

Item 1A. Risk Factors

There are no material changes from risk factors as previously discussed in our September 30, 2012 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On January 31, 2013, a rail car accident occurred near the Company’s Aberdeen, South Dakota ethanol plant. Frigid temperatures and high winds caused an equipment failure with respect to eight ABE South Dakota hopper rail cars containing distillers grains, pushing these cars away from the plant toward the main rail line. The cars broke through a containment barrier and collided with an empty coal train that was traveling on the BNSF Railway line, resulting in significant damage to two hopper cars and minor damage to six hopper cars. Eight coal cars sustained varying degrees of damage. There was no damage to the Company’s Aberdeen plant and it continues to operate. The Company carries insurance, subject to customary deductibles, and currently believes the accident will not have a material adverse effect on the Company’s financial condition and results of operations.

Item 6. Exhibits

The exhibits filed herewith are set forth on the Exhibit Index filed as a part of this report beginning immediately following the signatures.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ADVANCED BIOENERGY, LLC
Date: February 14, 2013	By:	/s/ Richard R. Peterson
		Richard R. Peterson
		Chief Executive Officer and President, Chief Financial Officer (Duly authorized signatory and Principal Financial Officer)

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EXHIBIT INDEX

Exhibit No.	Description	Method of Filing
31	Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer, Financial and Accounting Officer.	Filed Electronically
32	Section 1350 Certifications.	Filed Electronically
101	The following materials from Advanced BioEnergy’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2012, formatted in XBRL: (i) Consolidated Balance Sheets at December 31, 2012 and September 30, 2012 ; (ii) Consolidated Statements of Operations for the three months ended December 31, 2012 and December 31, 2011; (iii) Consolidated Statements of Changes in Member’s Equity for the three months ended December 31, 2012; (iv) Consolidated Statements of Cash Flows for the three months ended December 31, 2012 and 2011; and (v) Notes to the Consolidated Financial Statements.	Filed Electronically

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